Trump Retreats On North American Metals Trade

US President Donald Trump speaks during the National Association of Realtors Legislative Meetings and Trade Expo in Washington, DC. Trump announced the US has agreed to drop steel, aluminum tariffs with Canada and Mexico. SAUL LOEB/AFP/Getty Images

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Until Friday, there were no notable instances of President Trump withdrawing protection once it had been imposed. Even when his administration struck a reworked trade deal with South Korea last year, tariffs were replaced with quotas that were just as bad. The administration had made clear that it had wanted a similar quotas-for-tariffs swap in North America, but Mexico and Canada resisted. On Friday, President Trump announced that the “national security” tariffs were coming off steel and aluminum from the two neighbors.

Five questions and answers about what this all means:

Is this actual liberalization? What will it do?

This appears to be the real deal. The steel and aluminum tariffs are to be lifted within 48 hours of Friday’s announcement. Canada and Mexico are to lift their retaliatory tariffs against the United States, which caused Americans real political pain. The countries also agreed to end their World Trade Organization cases against each other, which, if the approach were to spread, would spare the WTO from making an impossible choice between rendering past agreements meaningless and mortally offending the United States.

Can we say that the steel and aluminum protection against Canada and Mexico was effective?

No. The main effect was to strain relations severely, as the protection came with the assertion that Canada and Mexico posed national security threats to the United States.

Proponents argued that the tariffs helped bring negotiating partners to the table, but Mexico and Canada had already been at the negotiating table, both in NAFTA talks with the Trump administration, but also in TPP talks with the Obama administration before that. Nor did the tariffs do much to move the talks forward; the ultimate agreement has minimal effect and came months after the tariffs.

Finally, the worldwide national security tariffs on steel seem to have done little to help the industry, whose shares have declined dramatically more than the S&P 500 since the start of 2018.

What is the deal with enforcement?

The Trump administration did not give up on protecting metals all together. There is some curious language in the agreement about monitoring trade in the sectors. If “imports of aluminum or steel products surge meaningfully beyond historic volumes of trade over a period of time” then the countries can hold consultations and ultimately reimpose protection on the specific type of steel or aluminum in question. The agreement limits retaliation against such move to “the affected sector” – i.e., no politically potent attacks on agriculture.

At first blush, this looks a lot like a safeguard – a well-established provision in trade agreements that allows a country to temporarily reimpose protection when a surge of imports injures a domestic industry. Yet Friday’s agreement does not seem to require the elaborate investigative process and demonstration that safeguards do. It looks much easier to reapply protection.

There is also the important question of the legal standing of this new agreement. Is it an amendment to the USMCA? Does it have legal force? This is particularly interesting because Democrats have been demanding that the Trump administration renegotiate certain portions of the USMCA. Administration officials, Canada, and Mexico have all argued that the deal is closed and no amendment is possible. That’s a harder stance to maintain if you just completed an amendment.

Why did the Trump administration back off?

We can only speculate. The steel and aluminum tariffs – and the accompanying retaliation – had been harshly and persistently criticized by Democrats and Republicans in Congress alike. They were hurting relations with Mexico and Canada and hurting American citizens. Yet these factors had been around for months and President Trump had resisted tariff removal.

This week marked a sharp deterioration in trade relations with China. That worsening came after many had thought a resolution might be near. The Trump administration may have decided that it could only conduct so many trade battles at one time.

They may also have felt pressure to get the USMCA through Congress. The administration has identified passage as its top legislative priority and the political window for moving the agreement is closing rapidly.

Does this clear the path for the passage of USMCA?

No. Removal of the metals tariffs was a necessary but not sufficient condition for USMCA passage. It was very unlikely that any of the three national legislatures would move on the deal while the tariffs were still in place. With their removal, the odds seem pretty good that Canada and Mexico will pass the agreement.

In the U.S. Congress, the reaction among Republican leaders was warm. But the USMCA must move first through the House Ways & Means Committee. Its chairman, Richard Neal (D-MA), had a cooler response: “House Democrats continue to have a number of substantial concerns related to labor, environment, enforcement, and access to affordable medicines provisions. Those issues still need to be remedied.”

The steel and aluminum tariffs have been a futile and costly experiment in protectionism. They remain on many countries in the world, but the opening to Canada and Mexico is to be celebrated. Though the move may not suffice to move the President’s trade agreement nor repair the damage that has been done to the relationships, it’s a step in the right direction.